Terminating Your Term Life Insurance Policy

Are you right in the middle of your life insurance plan and starting to realize it might not be totally necessary? Term life insurance is meant to cover you for a certain period of time, usually purchased in plans of 10, 20, or 30 years. So what happens if you’ve maintained your 30 year-term plan for 20 years, but now your children are grown up, you’ve retired, and the house is nearly paid off? Some financial experts suggest that your best course of action may actually be cancelling your contract. You’ll probably outlive your temporary policy and there’s really no need it for it now anyways. You can take the money you save from it and put it toward other investments or paying off debt. It’s a compelling argument and one that makes sense for many people, but not everyone is ready to go without a policy. If you aren’t sure about cancelling your plan completely, here are some other options you could consider.

Other Options

  • Rather than getting rid of your coverage all together, some companies allow you to convert your temporary policy into a permanent plan. While converting will probably cost you more, it gives you the security and peace of mind of always having a contract. Remember that most industry experts agree it’s better to have some form of protection than none at all.
  • Once you reach a certain age, purchasing another 10-30 years of temporary coverage probably doesn’t make much sense for you. Premiums get more and more expensive as you age, so you’re likely better off investing that money. Ask your financial planner about mutual funds and other investments.
  • If you’re worried about outliving your plan, don’t be! Most people do and it’s really only there to protect your loved ones should you die prematurely, but if you want some kind of return on your agreement you may be in luck. Some companies offer what’s referred to as a return of premium (ROP) clause or rider. It will almost certainly cost you more money, but at least some of your premiums are returned to you if you outlive your contract.
  • Finally, it’s not uncommon for people to simply keep their policy even after they no longer financially require it. It’s easy to get used to the low premiums, why get rid of them now? Considering how many people don’t have enough coverage or any at all, it’s never a bad idea to keep it.

Additional Resources